Should I invest in a Long Term Care Insurance product? As I look at my overall portfolio and what I am projecting once retired, I am questioning if I should take out a LTC Insurance or consider cash flowing the possibility of the future expense. I've not investigated the products in depth but could consider a large deductible product. Also, I'd only want the insurance for the first one of us that would need to use it securing the balance of the portfolio for the surviving person to use. The second one could use the portfolio to payout any expenses and still have a significant inheritance to my children.

My story - I am 54 and my wife is 49. Today we have 1.4M Taxable Investment and 800k retirement accounts. House valued at 500k w/ 75k mortgage cars paid off next year. We invest roughly 75k per year through 401-k/ ESPP/ 403-B and debits into my UBS investment accounts.

Plan is to work until 59 (another 4-5 years) w/ projected retirement starting portfolio of around 3.0-3.4M:
In terms of Annual Expenses:

Needs = 90-110k

Needs+Wants =90-110k +30k -ages 59 thru 62 (projecting a total of25k added income during this time through consulting/ part-time)
Needs+Wants =90-110k+20k thereafter. SS to kick in around 67 for 35k (inclusive of wife's draw).

Should I invest in a Long Term Care Insurance product? As I look at my overall portfolio and what I am projecting once retired, I am questioning if I should take out a LTC Insurance or consider cash flowing the possibility of the future expense. I've not investigated the products in depth but could consider a large deductible product.

Don't think of LTC insurance (or any insurance) as an investment. Insurance is just a way to pool some money with other insureds to cover a big cost that a few of you will incur unexpectedly. It is a way to minimize the risk of paying for something to make you "whole" that you wouldn't be able to afford on your own.

I think a reasonable way to think of this is to find out what the premiums would be for the typical coverage (you can always get it re-quoted later if you change the options--length of time you collect/maximum payout, inflation protection or not, deductible, age you start), estimate the likelihood you would need it (using longevity and final illness of your parents, grandparents), and the costs that your typical care would incur. I know this is like throwing several guesses into one equation that ends up giving you an answer that may or may not apply to you, but at least its a starting point.

If you do think it is worthwhile, this is probably the ideal time to buy it (in your 50s) before chronic medical conditions set in and make you ineligible for any LTC insurance. Your rates will be lower when you start early too. But some people find that the premiums jump too much in their 70s or so, making it no longer worth it, so they then drop it.

In my experience, my employer paid for basic coverage and we could increase the options at our own cost. I selected 5% inflation protection for 20 years, I think, and a 6-year payout for under $100/month. When I retired, I was able to keep the policy and pay the whole premium myself. So far the premiums haven't increased and when I last talked to HR, they claimed the premiums aren't supposed to increase unless the whole group (of current employees) also gets the premium increase. I really don't expect the payout to be able to cover my entire nursing home costs, but if my premiums stay as they are and they cover half of the cost, I will be happy.

When I was retiring, I needed to figure out if I wanted to continue the insurance on my own. I looked up the carrier's financial strength at AMBest.com, an insurance company rating service that you can use for free if you sign up for an account. (They have never used my email address for anything, but probably just want to make sure robots aren't abusing their web site.) I also called their customer service line to ask how I would file a claim so I would have the info already available for my family. They sent me some information about that and were clear that you need to contact them before you are placed somewhere since they would only pay claims if the placement and service you are hoping to use meets your doctor's recommended plan and certain state standards. If you don't work with them and the doctor to see that all the criteria are met beforehand, they could easily deny the claim.

Should I invest in a Long Term Care Insurance product? As I look at my overall portfolio and what I am projecting once retired, I am questioning if I should take out a LTC Insurance or consider cash flowing the possibility of the future expense. I've not investigated the products in depth but could consider a large deductible product.

Don't think of LTC insurance (or any insurance) as an investment. Insurance is just a way to pool some money with other insureds to cover a big cost that a few of you will incur unexpectedly. It is a way to minimize the risk of paying for something to make you "whole" that you wouldn't be able to afford on your own.

I think a reasonable way to think of this is to find out what the premiums would be for the typical coverage (you can always get it re-quoted later if you change the options--length of time you collect/maximum payout, inflation protection or not, deductible, age you start), estimate the likelihood you would need it (using longevity and final illness of your parents, grandparents), and the costs that your typical care would incur. I know this is like throwing several guesses into one equation that ends up giving you an answer that may or may not apply to you, but at least its a starting point.

If you do think it is worthwhile, this is probably the ideal time to buy it (in your 50s) before chronic medical conditions set in and make you ineligible for any LTC insurance. Your rates will be lower when you start early too. But some people find that the premiums jump too much in their 70s or so, making it no longer worth it, so they then drop it.

In my experience, my employer paid for basic coverage and we could increase the options at our own cost. I selected 5% inflation protection for 20 years, I think, and a 6-year payout for under $100/month. When I retired, I was able to keep the policy and pay the whole premium myself. So far the premiums haven't increased and when I last talked to HR, they claimed the premiums aren't supposed to increase unless the whole group (of current employees) also gets the premium increase. I really don't expect the payout to be able to cover my entire nursing home costs, but if my premiums stay as they are and they cover half of the cost, I will be happy.

When I was retiring, I needed to figure out if I wanted to continue the insurance on my own. I looked up the carrier's financial strength at AMBest.com, an insurance company rating service that you can use for free if you sign up for an account. (They have never used my email address for anything, but probably just want to make sure robots aren't abusing their web site.) I also called their customer service line to ask how I would file a claim so I would have the info already available for my family. They sent me some information about that and were clear that you need to contact them before you are placed somewhere since they would only pay claims if the placement and service you are hoping to use meets your doctor's recommended plan and certain state standards. If you don't work with them and the doctor to see that all the criteria are met beforehand, they could easily deny the claim.

One thing I have noticed about some, not all group LTC, and the reason their rates are so much less, is that many of the plans only pay 50-60% of the daily benefit for home care and assisted living, were 80% of all long term care claims come from.

One thing I have noticed about some, not all group LTC, and the reason their rates are so much less, is that many of the plans only pay 50-60% of the daily benefit for home care and assisted living, were 80% of all long term care claims come from.

But wouldn't they pay for twice as long and therefore have about the same total dollar outlay? Using made up numbers, if AL costs $3K/month and my total benefit is $6K for 3 years (216K total), they will eventually pay for 6 years. If LTC costs 6K/ month, they only pay for three years but the total paid out is the same. Or are you saying they'll pay up to 50% of the AL cost (1.5K per month) , but 100% of the LTC cost subject to monthly limit?

From a more humanistic sleep-at-night perspective, if you don't have kids or other younger family members you feel you can depend on to help out when you are older, it is hard to sleep at night without some reassurance that you can pay someone for these services.

I would be very nervous without a, say, 2-million dollar cushion to set aside dedicated to long term care. It doesn't look like you have that kind of money.

One thing I have noticed about some, not all group LTC, and the reason their rates are so much less, is that many of the plans only pay 50-60% of the daily benefit for home care and assisted living, were 80% of all long term care claims come from.

But wouldn't they pay for twice as long and therefore have about the same total dollar outlay? Using made up numbers, if AL costs $3K/month and my total benefit is $6K for 3 years (216K total), they will eventually pay for 6 years. If LTC costs 6K/ month, they only pay for three years but the total paid out is the same. Or are you saying they'll pay up to 50% of the AL cost (1.5K per month) , but 100% of the LTC cost subject to monthly limit?

You are correct. Benefit period is extended but the insurance company has the advantage because only 20 per cent of claims last over 6 years. Most everyone wants comprehensive coverage, especially for home care.

From a more humanistic sleep-at-night perspective, if you don't have kids or other younger family members you feel you can depend on to help out when you are older, it is hard to sleep at night without some reassurance that you can pay someone for these services.

I would be very nervous without a, say, 2-million dollar cushion to set aside dedicated to long term care. It doesn't look like you have that kind of money.

Pretty sure Medicaid will keep me from having to sleep under a bridge if I run out of money. My plan/hope is that my own resources will let ME (and DW) get the TYPE of care I want. If we run out of time before we run out of money, DS and DD will be grateful.

From a more humanistic sleep-at-night perspective, if you don't have kids or other younger family members you feel you can depend on to help out when you are older, it is hard to sleep at night without some reassurance that you can pay someone for these services.

I would be very nervous without a, say, 2-million dollar cushion to set aside dedicated to long term care. It doesn't look like you have that kind of money.

Pretty sure Medicaid will provide minimal care if I run out of money. My plan/hope is that our own resources will let me (and DW) get the type of care we want in a facility of our choice. If we run out of time before we run out of money, DS and DD will be grateful.

Check on some policy costs and options available. I will always say it makes sense to buy the policy if you have the assets or income to afford it. We pay now about $2600 annual, with the cost going up 50% next year. We've had the plan 6 or 7 years, and this is the first increase. So, when retired, my cost will be about 2% of projected income. Depending on your area, assisted living can be $100 to $175 daily, and nursing home costs $150 to $275. For a quick estimate, assume $220 average nursing home cost now, and a 140% increase in 30 years, or $530 daily. For a four year stay, that is $774,000, or $16,120 per month. In 30 years, your children, your inheritors, will be making your care decisions, and writing out that $774,000 worth of checks.

Fifteen years ago, my father passed away, leaving $300,000 in net worth. My mother had Alzheimers, and spent four and a half years in a nursing home with bills over $200,000. I was very happy my father had purchased LTC coverage providing $150,000 of benefits which along with mom's social security and small pension covered these costs, protecting the inheritance for my brother and I.

You could escape all costs, so your premiums could be perceived as a waste of money. But, you could say that about any type of insurance - home, auto, term, medical - where you don't make a claim. You have a home worth $500K. Our home is worth less, probably $340K, and it will be paid off in 4 years. Our last homeowners insurance bill was almost $1700. Right now we have to maintain insurance on the home, as a condition of the loan, but I fully expect to continue paying the steadily increasing cost of my homeowners insurance, even after the house is paid.

When discussing the purchase of LTC, one should always consider purchasing a "Partnership" policy. They allow you to "protect" an amount of assets equal to the amount of coverage bought (including inflation protection). If you buy a policy with 300K of coverage, that will will roughly double to 600K of coverage after 14 years @ 5%. That means if you or your spouse blow through the 600K in a nursing home, you and your heirs get to keep 600K even if you wind up on Medicaid. That can go a long way toward preventing "impoverishment" of your spouse or preserve an inheritance for your kids.

LTC policies do not make sense to me (at least when I last looked at them) because their premiums can rise arbitrarily in the future. So, there is no guarantees as to how much you will be paying for your benefits. The company has control over it. You do not.

Some believe that the companies are now using more accurate data to predicate premiums and that creates more rate stability. In addition, many states have made it much more difficult for companies requesting rate increases. But, like most insurance like health,car and home rates are never guaranteed.

Some believe that the companies are now using more accurate data to predicate premiums and that creates more rate stability. In addition, many states have made it much more difficult for companies requesting rate increases. But, like most insurance like health,car and home rates are never guaranteed.

Yes, and none of the above makes me want to pay every year, just to discover that after say 15 years the prices have become too unreasonable for the coverage they provide and that I wish I never started paying. At that point, the decision will be either to drop the policy along with 15 years worth of payments, or keep paying some outrageous premiums.

Yes, and none of the above makes me want to pay every year, just to discover that after say 15 years the prices have become too unreasonable for the coverage they provide and that I wish I never started paying. At that point, the decision will be either to drop the policy along with 15 years worth of payments, or keep paying some outrageous premiums.

But you will still have had coverage during the time you were paying the premiums. It doesn't just cover elderly in their last year of life, but the insured person from the day they started the insurance. What if you had surgery next week, then needed to go to assisted living until you could take care of yourself and medical insurance didn't cover the assisted living? With Long Term Care insurance, you would be all set.

Using your reasoning, it is like saying you haven't had a car accident in the last 15 years but since you just bought a new car, your car insurance just increased 50%. Why would you pay these outrageous premiums when you had never filed a claim?

Yes, medical care is getting more expensive, both for you (as you get older) and for the person who might be injured by you, as well as the cost of cars.

I have relatives who bought LTC policies back in the 1980s that were set up so that you bought them in your 40s/50s and paid premiums for 10-15-20 years then were "paid in full" at retirement age. Those were a darn good deal and are long gone from the market!

Last edited by stan1 on Sun Oct 01, 2017 10:19 am, edited 1 time in total.

Yes, and none of the above makes me want to pay every year, just to discover that after say 15 years the prices have become too unreasonable for the coverage they provide and that I wish I never started paying. At that point, the decision will be either to drop the policy along with 15 years worth of payments, or keep paying some outrageous premiums.

But you will still have had coverage during the time you were paying the premiums. It doesn't just cover elderly in their last year of life, but the insured person from the day they started the insurance. What if you had surgery next week, then needed to go to assisted living until you could take care of yourself and medical insurance didn't cover the assisted living? With Long Term Care insurance, you would be all set.

Using your reasoning, it is like saying you haven't had a car accident in the last 15 years but since you just bought a new car, your car insurance just increased 50%. Why would you pay these outrageous premiums when you had never filed a claim?

Yes, medical care is getting more expensive, both for you (as you get older) and for the person who might be injured by you, as well as the cost of cars.

LTC is very much UNLIKE car insurance. Your insurance rates are specific to your risk in that specific year. Same for house insurance.

You pay $X / year just to cover THAT year. You don't get car or house insurance for years when you don't have a car or the house. They don't even sell that

On the other hand, chances of LTC being needed (as well as long assisted facility stays requiring LTC coverage) prior to old age are rather negligible.

If you want to approach LTC the same way as car insurance, how many people buy LTC insurance just for the coverage of THAT year only? If that's how people think, I don't think anyone should be recommending getting LTC insurance "while you are young to help with rates". Instead, one should buy it when your chances of using it in next year only are high enough... Yet you never hear that advice. The perception is that you "lock in" your better rates for future years... except you don't really lock in much - you are subject to (arbitrarily?) huge premium hikes at discretion of the LTC company.

Quoting part of your own advice:

celia wrote:Your rates will be lower when you start early too. But some people find that the premiums jump too much in their 70s or so, making it no longer worth it, so they then drop it.

That is certainly not the mindset of someone buying car or house insurance.

P.S. Side note: if the LTC companies, with all their PhDs, miscalculate their profitability on these policies (including percentage of consumers dropping these policies), they have ability to hike the rates. If we, as consumers, miscalculate what these policies should have been worth to us, we have no recourse but to eat the losses.

P.P.S. Related but different topic: I know you also mentioned ineligibility issue after developing bad chronic conditions, but that case is just the same as saying you can't get insurance when event is too likely to happen already. E.g. you can't get life insurance at same rates after you get terminally ill. That's not in itself is a reason to get a life insurance policy if that life insurance were on unreasonable terms to begin with.

A I said initially, I recommend the purchase if you have the assets to protect and income to support the premium. Even with the increase, what I will be paying is for me a reasonable cost to transfer the risk of paying long term care from me to a third party. Insurance companies did underestimate the underwriting risk, and most companies have been repricing policies over the past 10-15 years. On top of that, unusually low interest rates have increased reserve requirements, also adding to increased cost. Those things happen, but also can happen in other markets like my homeowners policy which has doubled in 10 years. Companies can increase rates, but cannot do so arbitrarily. They have to file increases with each state's department of insurance, and provide justification to those regulators.

There is also something to the idea of buying young. For example, in our case, where a 50% increase was approved, the increase was applied to all customers of the affected product lines equally. So, if a 50 year old had paid $2200, they got a 50% increase to $3300. We bought ours at age 55, and premium was $2600, so our new rates will be $3900. So, buying young does benefit you. I'll also have the potion to modify the policy if I want to reduce the increase.

People on this board are always posting about "self-insuring" their future LTC costs. But, it doesn't work that way. As I noted in my earlier post, it very likely won't be you making the decisions and paying the bills when they come due. It will be your heirs. Most people can't afford the premiums and/or do not have much of an estate to protect. Some can't buy coverage for medical reasons. For those with a substantial estate ($1M+), consider the option. It will be greatly appreciated by your heirs (or you if spouse goes on claim) if the need should ever arise.

An alternate to consider. IF you are in good health when you get to about 75 years, and have sufficient money, and are willing to move, a type A continuing care retirement community might be the thing. It takes a hefty buy-in amount, plus a good sized monthly payment. You could check such places in your area for costs. But then, once you are in at an independent living level, you can transfer to higher levels of care at no extra cost. That might work well to preserve assets for your heirs. But it does need substantial resources going in. Note, this is for type A. There are type B and C places where higher levels of care entail large extra payments.

On the other hand, chances of LTC being needed (as well as long assisted facility stays requiring LTC coverage) prior to old age are rather negligible.

I don't know the statistics for the number of people in each age bracket who are in assisted living, but you might be surprised at who is there. I have been in about 8 facilities due to relatives needing care. Some of them are huge with 100 beds (2 people to a room). But there are also many houses in neighborhoods that have been converted into assisted living facilities that house 6 to 10+ clients. You often don't even know they are assisted living facilities unless you live a few doors from them.

In one place that housed about a dozen people, about half of them were age 40-60. They were not there for the short term, but until something changed in the situation where they had to move elsewhere. That place was livelier than most with several clients having the ability to come and go as they please. Some left for work each day. But they were all monitored as they were given meds by the staff, provided meals, and provided support services. This facility was an outlier, but there were younger people in the other facilities too.

LTC policies do not make sense to me (at least when I last looked at them) because their premiums can rise arbitrarily in the future. So, there is no guarantees as to how much you will be paying for your benefits. The company has control over it. You do not.

We pay now about $2600 annual, with the cost going up 50% next year. We've had the plan 6 or 7 years, and this is the first increase.

Is there any guarantees that next year it will not go up 100%? 1000%? How about 50% increase every year from now on? etc...

When your premiums are going through the roof, your choices will be to stop the policy and forget about all the money you already invested over years or pay up...

Your scenario of ever increasing, random, and huge increases is not possible. Increases have to be approved by your state's insurance commissioner. No politician would ever allow anywhere near the increases depicted in your post. It's insurance NOT an investment!

But then, once you are in at an independent living level, you can transfer to higher levels of care at no extra cost.

Of the CCRs I've looked into the buy-in does not include LTC, particularly for a skilled nursing facility (SKF). Whether assisted living (AL) is covered by a CCR purchase is questionable as there's often a fine line between AL and SKF situations.

From a more humanistic sleep-at-night perspective, if you don't have kids or other younger family members you feel you can depend on to help out when you are older, it is hard to sleep at night without some reassurance that you can pay someone for these services.

I would be very nervous without a, say, 2-million dollar cushion to set aside dedicated to long term care. It doesn't look like you have that kind of money.

I would say that one of the big reasons to have LTC insurance , if you don't have the resources to self insure, is so you don't have to depend on your kids
or family members to take care of you.You know they will but do you really want to disrupt their their lives like that because you failed to plan for it?

But then, once you are in at an independent living level, you can transfer to higher levels of care at no extra cost.

Of the CCRs I've looked into the buy-in does not include LTC, particularly for a skilled nursing facility (SKF). Whether assisted living (AL) is covered by a CCR purchase is questionable as there's often a fine line between AL and SKF situations.

Although there is some overlap SNF care is medical services covered by health insurance like medicare for those who are seen to have rehab potential whereas AL services are assistance with activities of daily living and not considered medical care therefore not covered by most health insurance like medicare.Many nursing homes have a SNF wings in their facility as a profit center and are well known to " skill " their residents as often as possible to be able to bill medicare for SNF days .

A few thoughts. I am 58 years old now, I was about 50 when I looked into Long Term Care Insurance. At that time, it looked like you could leverage dollars about 3:1 buying the policy over taking the premiums and investing them for 30 years or so. I looked into $100/day with 5% annual increase in benefit amount but I wondered, what if I got laid off? Would I be able to afford to keep paying the premiums? About that time, Met Life decided to exit the LTCI business. I also started reading that policyholders were facing premium increases. I wondered if I could pay premium increases in my 70's and 80's when presumably I would be on a fixed income. I decided not to buy. Since then, the trends I observed actually accelerated as more companies exited the business.

For you, it is a close call. You are in the position where the call between self-insuring and buying LTCI is pretty close. My feeling is that the product was not properly priced to begin with and the industry is still trying to figure this out. Very low interest rates from insurance company bond portfolios don't help either. Note also the problems Genworth is having and also note Genworth's stock price.

In my case, I made the right decision. As it turned out, I got laid off at age 55 and I would have had to stop premium payments. At age 51, I decided to increase my retirement contributions in lieu of paying LTCI premiums. I figured that if I got laid off, I would still have the money. Also, there were rumblings in the organization that something was afoot. LTCI was a commitment I did not want to make.

But then, once you are in at an independent living level, you can transfer to higher levels of care at no extra cost.

Of the CCRs I've looked into the buy-in does not include LTC, particularly for a skilled nursing facility (SKF). Whether assisted living (AL) is covered by a CCR purchase is questionable as there's often a fine line between AL and SKF situations.

I have had to look at quite a few (online) and yes, most are NOT type A and hence do not include skilled care in the base price. This will likely be state-dependent. I have found a small number in my area of interest that do include the three level progression IL, AL, SK. One key thing is that you have come in healthy. Different places have different arrangements for pre-existing conditions that eventually lead to care progression, and in those cases, costs will be higher. CCRC's are not for everyone, but it's worth a look. I did not know about these places until I saw a BH post about a year ago.

My parents have had a long term care policy for a long time. One was caretaker until dementia/Ahlzeimer's started to take its toll. They were told they had a really good one, but it still had a 160 day deductible. They started to have professional home care come in almost everyday that counted against the deductible, parent got sick, went to hospital, nursing home and died before the deductible was reached. Another relative has had to put both parents into a nursing home that costs about $10K a month.

Basically if you can afford to cash flow then I wouldn't buy LTCI, but if you can't(for at least 5 years) then I would purchase it. But you would also have you house equity to fall back on.

On the other hand, chances of LTC being needed (as well as long assisted facility stays requiring LTC coverage) prior to old age are rather negligible.

I don't know the statistics for the number of people in each age bracket who are in assisted living, but you might be surprised at who is there. I have been in about 8 facilities due to relatives needing care. Some of them are huge with 100 beds (2 people to a room). But there are also many houses in neighborhoods that have been converted into assisted living facilities that house 6 to 10+ clients. You often don't even know they are assisted living facilities unless you live a few doors from them.

In one place that housed about a dozen people, about half of them were age 40-60. They were not there for the short term, but until something changed in the situation where they had to move elsewhere. That place was livelier than most with several clients having the ability to come and go as they please. Some left for work each day. But they were all monitored as they were given meds by the staff, provided meals, and provided support services. This facility was an outlier, but there were younger people in the other facilities too.

Someone who buys a LTCI policy in their 50s and pays a flat premium for 30-40 years clearly has a much higher risk of needing the insurance in their 80s than in their 50s and 60s. The chance of needing the insurance in one's 50s and 60s is not negligible - that coverage is an important component of the insurance. However, the main reason that the insurance is bought is for care in one's 80s and beyond. The insurance company takes in premiums in people's 50s and 60s, invests (largely in things like corporate bonds) and has the money pooled up to pay claims when policyholders hit their late 70s through 90s. This is why it's usually disadvantageous to drop a policy after paying into it for years - one has already partially pre-paid for care that may be needed decades down the line, and this is "thrown away" by abandoning a policy. (However, each case is different and requires carefully doing the math).

Should I invest in a Long Term Care Insurance product? As I look at my overall portfolio and what I am projecting once retired, I am questioning if I should take out a LTC Insurance or consider cash flowing the possibility of the future expense. I've not investigated the products in depth but could consider a large deductible product.

Don't think of LTC insurance (or any insurance) as an investment. Insurance is just a way to pool some money with other insureds to cover a big cost that a few of you will incur unexpectedly. It is a way to minimize the risk of paying for something to make you "whole" that you wouldn't be able to afford on your own.

I agree that it's important to separate out insurance from investing, as hybrid insurance/investment products (like whole life with a LTC rider) are very complex and often have high fees.

However, I feel that modeling insurance as a pseudo-investment may be reasonable. An insurance policy, like an investment, is something that one puts money into, and may or may not get money out of. The "puts money into" part is investing. The "may or may not" part in investment terms risk, or standard deviation. The "get money out of" part is, in investment terms, return.

The issue is that, of course, regular insurance policies negative expected returns - the insurance company pools risk and must pay its overhead. The overhead of the insurance company means that insurance must have a negative expected return - risk pooling is not something that can be done for free. (Of course, return is also fundamentally undesirable as it would involve the awful fate of being disabled for a long period in a nursing home). Standard deviation is essentially uncertainty in whether the policy will pay out, which is essentially based on uncertainty in how much one's long term care expenses (if any) will be. The possible healthcare expenses are a risk to the mutual fund portfolio, as the portfolio would have losses (i.e. withdrawals) if long-term care is needed. The LTCI component of the portfolio would have returns (i.e. payouts) when long-term care is needed, though. Thus, LTCI, if modeled as a pseudo-investment, has a sharply negative correlation to the value of the regular mutual fund investment portfolio.

So, LTCI has a mildly negative expected return and a sharply negative correlation to the overall portfolio value. Can LTCI be of benefit? That, in my opinion, is a problem that can be solved using Modern Portfolio Theory and Monte Carlo techniques.

One can write a long Monte Carlo simulation that takes into account portfolio values, future investment returns, uncertainty regarding future investment returns, future long term care expenses, uncertainty regarding future long term care expenses, future inflation scenarios, costs of prospective LTCI policies, and so on and so forth. Such a simulation can generate final portfolio values and the standard deviation of said final portfolio values at varying levels of LTCI coverage purchased. By optimizing for the level of LTCI coverage (if any) that produces the portfolio with the highest Sharpe ratio, one can find a rigorous, analytical solution to the question of how much LTCI coverage (if any) should, in theory, be purchased.

Obviously, the above is very difficult. But it shows why providing a clear, analytical solution to the problem of LTCI is hard - there are many moving parts.

Your scenario of ever increasing, random, and huge increases is not possible. Increases have to be approved by your state's insurance commissioner.

Yes, and states have already allowed both 50% and 100% increases in the past. States insurance officers also have to assure that the insurance company does not go out of business, which is why if insurance company convinces them the increases are required, they go for it. Who is to say that in next 10 years similar hikes won't be necessary? Noone can predict it. You got no guarantees.

The LTC company will invest your premiums over next decades. If they make bad investment decisions, they go to commissioner office and ask for premium hikes or go out of business. If they make good investments, the rip the profits. You, as LTC purchaser, are subsidizing this.

I recommend the purchase if you have the assets to protect and income to support the premium.

So, say you buy LTC policy with $3k premium. What portion of your income do you allocate to supporting this premium? 6k? 10k? Over years and decades it may outpace inflation by huge amounts. You do NOT want to find yourself 20 years down the road having to stop paying because you can no longer afford premiums at THAT point...

Artful Dodger wrote:
Companies can increase rates, but cannot do so arbitrarily. They have to file increases with each state's department of insurance, and provide justification to those regulators.

Does not seem like much of hurdle. Regulators already approved 100%+ increases. Clearly, companies had found ways to convince regulators before. Threat of going out of business due to bad investment decisions or miscalculations on the part of LTC companies seems more than enough.

This is correct and I am wrong. And, no doubt, a SNF patient will be "rehabbed" just long enough for Medicare and Medigap to hit the limit (100 days or less, depending on a lot of things, particularly your knowledge of Medicare regs). Then it's self-pay or Medicaid.

As I noted many CCR buy-ins do not include non-SNF coverage. In very exceptional cases Medicaid under state-sponsored "Medicaid Waivers" might pay for some AL. From what I've observed the attributes of AL and non-SNF residents is often blurred. Some arrive as AL then physically and/or mentally degrade (even to the point of hospice care) and remain in AL regardless.

Someone who buys a LTCI policy in their 50s and pays a flat premium for 30-40 years clearly has a much higher risk of needing the insurance in their 80s than in their 50s and 60s.

I don't think you mean this the way I read it. Everyone who is still healthy at 50 has a much higher risk of needing it in their 80s than earlier, regardless if they buy it or not. And the premium doesn't have to stay flat. In other words, buying insurance or not does not change your risk.

The chance of needing the insurance in one's 50s and 60s is not negligible - that coverage is an important component of the insurance.

And that is why some employers pay for the basic coverage when you are working. They are more interested in getting you back to work than subsidizing your retirement expenses.

Although I will admit, the base coverage offered to employers is probably a loss leader for the insurance company so the employees become familiar with the company name while they are working and are thus more likely to buy additional coverage and other insurance from them. The insurance company also doesn't need to worry about the premiums coming in. The employer pays for them or collects them from payroll withholding, so that helps keep the insurance company costs down.

The biggest thing you can do to keep your LTCi bill under control is to accept the highest deductible/longest elimination period you can afford.

In your case this would seem to be a one year elimination period. This is so much cheaper because the insurance companies know that the majority of patients entering a nursing home will be dead before the year is up, and the insurance company will pay nothing.

A previous poster seemed to complain that they had a long elimination period, and the patient died before collecting anything. In my view that is a win, not a loss, just like never collecting on my fire insurance is a win, not a loss.

People here normally advocate taking the highest deductible insurance policy for home and car insurance. LTCi is no different. Yes, a years elimination period can easily cost $100,000 (or more), but if you have $1,000,000 in retirement funds, this a reasonable use of the funds, especially since the patient is unlikely to get any further real use out of the funds.

The biggest thing you can do to keep your LTCi bill under control is to accept the highest deductible/longest elimination period you can afford.

In your case this would seem to be a one year elimination period. This is so much cheaper because the insurance companies know that the majority of patients entering a nursing home will be dead before the year is up, and the insurance company will pay nothing.

A previous poster seemed to complain that they had a long elimination period, and the patient died before collecting anything. In my view that is a win, not a loss, just like never collecting on my fire insurance is a win, not a loss.

People here normally advocate taking the highest deductible insurance policy for home and car insurance. LTCi is no different. Yes, a years elimination period can easily cost $100,000 (or more), but if you have $1,000,000 in retirement funds, this a reasonable use of the funds, especially since the patient is unlikely to get any further real use out of the funds.

Ralph

Ralph - I agree with your cogent and well-worded post.

Having the longest elimination period offered by the most competitive company (that still has good financial ratings) is good for keeping the bill under control. It's incredibly likely (>60-70% chance) that one will need at least some long-term care. It's rather unlikely that one will need 3-5+ years of long term care. However, the unlikely scenarios (of needing 10 years of $150,000 a year care, for example) can be financially devastating and are the ones that would need protected against. The investor should save and invest for the first year or so of care. It's cheaper to buy insurance for years 3, 4, 5, etc instead of years 1 and 2 because it's unlikely that there would be a need for a year 5.

Note that most insurers do not offer lifetime policies anymore. Also note that most insurers offer elimination periods of 30, 60, 90, 180, or 360 days (or something like that). You likely can't get a 3-year elimination period, even if catastrophic risk coverage is what's actually desired. So premiums are quite expensive - and much of the premiums (the portion the insurance company uses for year 1 of a LTC need, for example) are essentially the equivalent of forced-savings in a high expense ratio corporate bond fund for a reasonably likely future need.

The chance of needing the insurance in one's 50s and 60s is not negligible - that coverage is an important component of the insurance.

And that is why some employers pay for the basic coverage when you are working. They are more interested in getting you back to work than subsidizing your retirement expenses.

Although I will admit, the base coverage offered to employers is probably a loss leader for the insurance company so the employees become familiar with the company name while they are working and are thus more likely to buy additional coverage and other insurance from them. The insurance company also doesn't need to worry about the premiums coming in. The employer pays for them or collects them from payroll withholding, so that helps keep the insurance company costs down.

Regarding employer coverage: I am assuming that one is purchasing a traditional, plain-vanilla policy at ages 55-70 (likely near or after retirement). I was not referencing employer LTCI coverage and am not familiar with it.

Someone who buys a LTCI policy in their 50s and pays a flat premium for 30-40 years clearly has a much higher risk of needing the insurance in their 80s than in their 50s and 60s.

I don't think you mean this the way I read it. Everyone who is still healthy at 50 has a much higher risk of needing it in their 80s than earlier, regardless if they buy it or not. And the premium doesn't have to stay flat. In other words, buying insurance or not does not change your risk.

Buying insurance alone doesn't change risks of going into a nursing home, that wasn't my main point. I was just pointing out, essentially, that most people in nursing homes (despite some exceptions) are in their 70s, 80s, and 90s - and few expect to be in a nursing home in their 40s, 50s, or early 60s.

Buying insurance doesn't change your health, so it doesn't change the risk of getting sick. It does, though change the risk level of your portfolio. It reduces the financial risk to the portfolio of needing to spend the portfolio on nursing home expenses - so buying insurance reduces financial risk. (It also puts a drag on the portfolio in the form of annual premiums).

Regarding whether the premium stays flat - the premium for most policies (at least, traditional, plain vanilla policies) is "expected" to stay flat. There is no guarantee, and some companies have raised premiums substantially on older, mispriced policies. This is sortof along the lines of how a money market fund is "expected" to maintain a $1 per share NAV - but there's no guarantee - see the history of the Reserve Primary fund. (Judging from past history, though, the risk of premium hikes is likely higher than the risk of a large money market breaking the buck... but these are both cases of differences between expectations and guarantees.)

In general, the insurance company collects much of it's money during the years that one is in their 50s and 60s, invests that money, and then later spends it when the policyholders are in their 80s and 90s. One is paying large amounts in one's 50s and 60s for coverage many decades on down the line - if one was wanting to insure only the risk of needing nursing home care between the ages of, say, 50 to 60, the coverage would be far cheaper!

Oh... Inflation protection is important, in my opinion. I like 3% as it is affordable and close to historical inflation - 5% is likely too high and too expensive and 0% is taking on too much inflation risk. Often, one needs inflation coverage for the policy to be partnership-eligible.

"Federal employees and retirees who participate in the Federal Long Term Care Insurance Program (FLTCIP) are in for some serious sticker shock. They pay the full cost of that insurance, and on Nov. 1, it will jump by up to 126 percent. The average increase will be 83 percent or $111 per month. That leaves retirees livid.

“I am stunned at the extent of the increase and angry that this type of financial pressure is being placed on federal employees and retirees,” said Richard G. Thissen, president of the National Active and Retired Federal Employees Association (NARFE). “This situation should not have occurred and signals the need for change in the structure of the FLTCIP to prevent federal employees and retirees from ever facing such huge, unexpected increases again.”

I suspect the insurance agent posting here will have an explanation but with every insurance product sold by agents from LTCi to Whole Life to Index Annuities it is buyer beware as State Insurance regulators simply do not care. I am self insured rather than put up with this insurance company nonsense.

According to this article http://obliviousinvestor.com/buykeep-ltc-insurance/ there is a 15.2% chance to incur a cost that exceeds $250K. With the potential that you may never need to use the insurance, the rates will likely increase over time and the insurance company may fail/default, I'll self insure.

According to this article http://obliviousinvestor.com/buykeep-ltc-insurance/ there is a 15.2% chance to incur a cost that exceeds $250K. With the potential that you may never need to use the insurance, the rates will likely increase over time and the insurance company may fail/default, I'll self insure.

Rates will increase. Only one company has defaulted. Not for eveyone that is for sure.

"Federal employees and retirees who participate in the Federal Long Term Care Insurance Program (FLTCIP) are in for some serious sticker shock. They pay the full cost of that insurance, and on Nov. 1, it will jump by up to 126 percent. The average increase will be 83 percent or $111 per month. That leaves retirees livid.

“I am stunned at the extent of the increase and angry that this type of financial pressure is being placed on federal employees and retirees,” said Richard G. Thissen, president of the National Active and Retired Federal Employees Association (NARFE). “This situation should not have occurred and signals the need for change in the structure of the FLTCIP to prevent federal employees and retirees from ever facing such huge, unexpected increases again.”

I suspect the insurance agent posting here will have an explanation but with every insurance product sold by agents from LTCi to Whole Life to Index Annuities it is buyer beware as State Insurance regulators simply do not care. I am self insured rather than put up with this insurance company nonsense.

The California database is Very enlightening. In some states, such as Kansas, companies have asked for increases well over 100% and received approval for as much as a 36% increase in premiums...in one year!

At the same time, I know individuals who are already getting excellent benefits from their policies. However, even those policies have limits ( about $300,000 for the specific individuals I know) covering about 3'years of care for them...or about $8000 a month. ..in our area of the country.

They also have policies which qualify as state partnership plans , allowing them " dollar for dollar' asset protection while still qualifying for Medicaid. In other words, they would be allowed to retain $300,000 in assets and still qualify for Medicaid.

When it comes to nursing homes, those who enter with significant costs covered by long-term insurance are more likely to be able to remain in the facility on Medicaid - if the insurance benefits are depleted and it eventually comes to that.

The nursing homes in my state are only required to take a certain percentage of Medicaid patients. Those who are already in the nursing home are more likely to be allowed to stay. I witnessed this when a friend stayed in a nursing home. Most who were already there tended to remain there..as they transitioned from self pay to Medicaid.

An insurance agent who sells these policies will of course see the 'benefit'. Most others don't in today's structure. Granted, insurance companies are not welfare agencies, they're it it for the money, as are insurance salesmen. But the use of fear to try to squeeze $150k from someone, knowing you will be hitting them with 50 percent premium increases seems a bit disingenuous. Part of the reason the increases are so large is they must take into account the large numbers of people that finally drop the policies (after the sales commissions are paid of course).

There are many folks who are hanging on to their policies since they have already spent a great deal on premiums. It's a hard decision to take that loss understandably. But it would be interesting to hear from BH's who have bought new policies in the last couple of years, and see their calculation/rationalization.

I bought LTC for five years, the premium was negligible because it was with pretax money. Now that I've retired, it's with after tax money so I cancelled it. I'm glad I did because both of my aunts are in their 90s and still coherent. No Alzheimer's yet, they are still cooking food. One has not even on any medicine. So there is a very good possibility that I will be paying for 40 more years and premium still rising. Not sure it's worth it.

I think that Long Term Care Insurance can be worth it for many. I feel it should be bought as insurance, not as a hybrid product that combines insurance and investment.

When buying something, one must do a cost-benefit analysis, and consider the reasons for the purchase.

You have to look at the three biggest reasons for the insurance:
1. It allows one to choose what care to get should it be needed - in the home, or in a nicer nursing home that doesn't take medicaid.
2. It protects assets from being used to pay for the costs of care, for the benefit of heirs.
3. Those who, for ethical reasons, wish to avoid medicaid, yet aren't able to self-fund the cost of care, would likely need insurance. I don't necessarily support this as medicaid can be reasonable for some. However, some have strong ethical beliefs in this area.

If you are satisfied with using the medicaid and medicaid options in your area, and/or have no heirs or negligible assets to protect, then the insurance probably isn't the best route. If quality or location of care is important, and asset protection is a consideration as well, then LTCI may be a good option.

There is a very real risk of needing care for 5+ years (with conditions like Alzheimer's, Parkinson's, stroke, etc). The costs involved in the worst-case scenarios could stretch into the seven figures. Yes, a lifetime policy is hard/impossible to find. But buying one of the longest-term policies offered by a competitive firm in one's area can protect assets for that period and greatly reduce the risk that the entire portfolio has to be spent on care. A, say, 5 or 7 year policy (followed by Medicaid if the insurance runs out) also reduces the length of time that Medicaid gets to decide the quality of care you get.

Long term care insurance, to me, is sort of like a bond fund. The insurance company puts much of the premium money in things like corporate bonds, but this isn't what I am referring to. LTCI is like a bond fund in that, like having bonds, it reduces overall portfolio returns vs being 100% equities - and also reduces risk. A bond fund does this by having a low correlation with equities. The reduction in returns by having some bonds is fairly small compared to the large reduction in risk - which is why people hold bonds in their long-term portfolios.

Similarly, LTCI reduces both returns and risks of a portfolio. Unlike bonds, the return of LTCI is negative - on average, you lose money buying insurance because the insurance company has its overhead / profit margin. However, unlike for bonds, the correlation between LTCI and an equity portfolio's value is very, very sharply negative. (Correlations between bonds and stocks are roughly zero, or only mildly negative).

Why? How could there be a sharply negative correlation between the value of an equity portfolio and whether buying LTCI turns out to be "worth it"? The solution is to see that the value of the stock portfolio declines not just because of market movements, but also because of heavy withdrawals from assets in order to pay for the cost of long term care. In these scenarios, LTCI pays for part of the care and reduces the need to withdrawal from assets as heavily.

So - LTCI is something that, on average you lose money on- but something that has sharply negative correlation with the value of the rest of the portfolio. Should it be bought? If premiums are so costly that they drag down your assets by too much, then the reduction in risk from the insurance isn't worth the cost. But if one can find policies where the premium expenses (reduction in returns) are fairly compensated by a large reduction in risk, then that may be a good option.

One could use Modern Portfolio Theory to determine how much to buy. One could model LTCI as a negative-return, negative correlation product, and plot risk vs return find the tangency portfolio.

if one can find policies where the premium expenses (reduction in returns) are fairly compensated by a large reduction in risk, then that may be a good option.

One could use Modern Portfolio Theory to determine how much to buy. One could model LTCI as a negative-return, negative correlation product, and plot risk vs return find the tangency portfolio.

I wonder if people who had done this exercise assumed 100%+ increases in their yearly premiums; and how that worked for their models... I'd think there are too many unknowns here to be modeled: potential premium increases of any size, inflation vs what's built into the product, your health / longevity, percentage of LTC company success when they do what they can to avoid payouts while you are too weak / demented to fight them, etc.

When LTC companies priced these out to get initial "reasonable" price, their PhDs ran the models and came up with something that turned out to be quite too low for the investments they invested in. Are you suggesting we'll do this better than they did? Difference is they can go to regulators (if there are any left in your state) and convince them they need an increase, but if you miscalculate, you are on your own.

This is like buying callable bonds - company can call them in if rates drop, but you can't call them in if rates increase. Those bonds are better be VERY attractively priced before you start thinking of them... And in case of LTC, they are much more complex to model.